Activision Blizzard Inc. (ATVI) has released Call of Duty: Black Ops II, which is claimed to be “the most ambitious Call of Duty ever.” The game is already off to a great start and is being made available through 16,000 retailers, including 4,400 stores of video game retailer GameStop Corp. (GME).
Call of Duty: Black Ops IIis laden with new features, innovative game play and is set in the futuristic world of 2025. The game can be played in both single player as well as multiplayer modes. The game is available on Microsoft’s (MSFT) Xbox 360 and Sony’s (SNE) PlayStation 3 gaming systems and PCs. It will be available for Nintendo’s Wii U from November 18, 2012.
First Day Performance; Ratings
Right after its release, thousands of gamers played the game and encouraged Activision’s management to eye new records. Activision has forecasted the game to be a greater success story than Call of Duty: Modern Warfare 3. Total sales of Modern Warfare 3 exceeded $400 million on the first day of its release.
The latest Call of Duty: Black Ops II seems well positioned to topple the record. According to Bloomberg, GameStop has already sold in excess of 1 million copies of Call of Duty: Black Ops II on the first day.
The Entertainment Software Rating Board (“ESRB”) has proffered an “M” (“Mature”) rating to the game. Metacritic has provided a Metascore of 85 for the Xbox 360 version and has shared positive reviews for the PS3 version as well. These positive ratings indicate that the game is likely to be popular, generating incremental sales going forward.
Call of Duty Franchise
The Call of Duty franchise has one of the most ardent fan followings and was one of the most-played games in 2010. Now touted as the most valued entertainment property, Call of Duty has already raked in more than $6 billion in sales (life to date). It is expected that each new game released under this franchise will significantly increase the cash inflow for Activision.
However, overexposure to the game might eventually tire the gamers due to its periodic launches every year. Moreover, Activision is heavily dependent on the Call of Duty franchise and any anomalies in the sales of the same will most likely affect the company’s top line.
We believe that Activision’s expanding product portfolio will boost top-line growth over the long term. The company has a strong product pipeline for the upcoming holiday season, which may be expected to drive the top line in the near term.
Activision expects its new title releases in October, namely 007 Legends, Skylanders Giants, Cabela’s Dangerous Hunts 2013, Cabela’s Hunting Expeditions and Transformers Prime to drive results in the next quarter. Moreover, sales of Call of Duty: Black Ops II coupled with Wipeout 3 and Family Guy: Back to the Multiverse would be incrementally beneficial for the company’s top-line growth.
However, continued softness in the video game industry, limited presence in the mobile gaming segment, higher adoption of free-to-play games and significant competition from Electronic Arts Inc. (EA) are the major headwinds going forward.
We prefer to have an Outperform recommendation over the long term (6-12 months). Currently, Activision Blizzard has a Zacks #3 Rank, which implies a Hold rating in the short term.